What Happens if You Have Unpaid Taxes?

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The information in this article is up to date for tax year 2023 (returns filed in 2024).

What happens if you prepare your tax return and realize you can’t pay the amount you owe?  While it may be tempting to ignore your tax bill, that will only make matters worse. 

Having unpaid taxes can lead to consequences beyond the typical penalties and interest. The repercussions get more severe the longer your tax debt remains unsettled. The IRS has up to 10 years to attempt to collect your debt, and they have different strategies for getting their money.  

Here’s what can happen if you don’t pay your taxes.

You’ll receive IRS notices in the mail.

When you have a balance due, the first thing the IRS does is send you a tax bill explaining how much you owe including penalties and interest. If you don’t pay, the IRS will issue at least one more notice before taking further action. 

What are the penalties for unpaid taxes?

Failing to file and pay your tax bill on time will teach you an expensive lesson. There are two potential tax penalties: One for failing to file on time and one for failing to pay your taxes on time. 

Failure to File

If you don’t file your taxes by the deadline, the penalty is five percent of your unpaid taxes up to a maximum of 25 percent. This is called a Failure to File penalty. 

Once your tax return is more than 60 days late, the minimum penalty is $485 or 100 percent of the unpaid taxes, whichever is less.  

Failure to Pay

The second penalty is for failing to pay your tax bill. This penalty is 0.5 percent of your unpaid taxes up to a maximum of 25 percent. That’s why it’s important to file your taxes on time, even if you won’t be able to pay on time. At ezTaxReturn, we can help you set up an IRS payment plan If you can’t afford the full amount you owe.

Read more: What Are the Penalties and Interest For Filing Taxes Late?

Does the IRS charge interest on unpaid taxes?

Yes, your unpaid balance will also accrue daily interest until your tax bill is paid off. The IRS interest rate is set every three months and is the federal short-term rate plus 3 percent. The current quarterly interest rate for individuals is 8%.

A federal tax lien will be filed against your property

When you refuse to pay your tax bill, the IRS may file a federal tax lien. This lets other creditors know that they have a right to your property, which includes your house, car, and financial assets. The tax lien is no longer directly reported to your credit bureau, but it is a public record, which can make it harder for you to get approved for new credit.

Can the IRS seize my property for unpaid taxes?

If you continue to ignore your tax debt, the IRS can levy your property. Just so we’re clear, a tax lien only gives the IRS the right to your property. With a tax levy, they can actually start taking away your belongings.  

Commonly, they’ll ask your employer to garnish your wages until your tax debt is satisfied.  Alternatively, they may seize the money in your bank account. Once the tax levy is issued, the bank will hold on to your funds for 21 days and then turn it over to the IRS. This will give you time to try to resolve the issue.  

Although your income and bank accounts are fair game, there are certain properties the IRS can’t touch. For instance, unemployment benefits, worker’s compensation, income for court-ordered child support, and certain public assistance payments.

You may receive an IRS summons

The IRS will only play the cat and mouse game for so long. If they’re having a hard time collecting your tax debt or confirming how much you owe, you may receive a summons. This legal document will force you or a third party to meet with an IRS officer to provide information, paperwork and/or testimony. The third party can be your financial institution, record keeper, or anyone with firsthand knowledge of your situation.

Can my passport be revoked for unpaid taxes?

Billions of Americans travel for business and leisure purposes. However, you can kiss your U.S. passport goodbye if you have a seriously delinquent tax debt. Once you owe the IRS more than $59,000, including penalties and interest, your State Department will be notified. As a result, you’ll be denied when you try to apply for a new passport. Current passport holders can have their privileges revoked. If it happens while you’re overseas, you may be granted a limited passport to return home. Other than that, you won’t be able to use your passport again until you resolve your tax problems.

Please remember, the IRS will not go away if you have an unpaid tax bill. The only way to get them off your back is to pay all your taxes. You can learn about your payment options here.

File your taxes fast and ez in as little as 30 minutes.

The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.